Internalisation of Externalities.
Regulations.
Institutions.
Policy options at the country level.
There is a very large potential for future biomass in energy provision strategies which is clearly demonstrated by Johansson et al. (1992). In fact, their Renewables Intensive Global Energy Scenario (RIGES, see summary) envisages that biomass-derived fuels will not only cover all the predicted increase in direct fuel-use by 2050, primarily in developing countries, but will also substitute for fossil-fuels as their use in industrialised countries decreases due to environmental concerns and increasing costs.
Presently, if traditional "non-commercial" forms of biomass use are ignored, biomass consumption accounts for an insignificant share of global energy use; however, by 2050, it is predicted to provide about 38% of direct fuel-use and 17% of electricity. In all, "renewables" are expected to provide 2/5 of direct fuel-use and 3/5 of electricity production at a cost comparable with other fuels. RIGES projects that global electricity supply will double by 2050, direct fuel use will increase by one third and CO2 emissions would drop to 3/4 of the 1985 level in the same period. {Johansson et al., 1992}
When considering the environmental and social imperatives for such a shift away from fossil fuels, now believed highly desirable by a consensus of scientists {IPCC, 1990}, the tools and incentives required must be found. It is widely accepted that a significant shift to a renewables-dominated energy sector will only occur once:
(a) Subsidies to fossil fuels are removed or mitigated creating a so-called "level playing field for energy;"(b) Links between energy and agriculture are recognised. If the world's increasing population is to be fed, then yields must continue to increase, and this will require more energy. Policies which encourage rural development, including the ready availability of a sustainable and indigenous energy supply are much needed in both developing and industrialised societies.
(c) The external costs of the present fossil-based energy systems, which are significant, are incorporated into the market. Full life cycle cost-benefit analysis of all forms of energy production systems which incorporate such "externalities" are necessary if (a) above is to be realised. For example, studies from Germany estimate the cost of these external effects including acid rain, NOx, particulates, etc., on the temperate forests at about DM 10 billion (US$ 6.25 billion) resulting from the degradation of 60 to 70% of forest cover. {Tributsch, 1993} The highly espoused "polluter pays principle" requires that regulations are observed and constant monitoring is ensured, thus necessitating the creation or strengthening of institutions which must have the ability to enforce such remits.
A few economists are now grappling with the problems involved in incorporating the "externalities" of fossil energy production into the market place Energy consumers such as the electrical utilities, and ultimately the individual consumers must become accountable for their energy consumption. Ascertaining and allocating precise costs may prove very complicated. For example, who should pay for the reduction in value of a house built in forests (where the view and environment considerably enhanced its value) which have now become degraded to such an extent that the proximity of these forests detracts from the house's value. The problem is exacerbated by the potential number of polluting sources, their distance from the house (which may even be international) and conflicting views on the exact impact of such pollution.
Possibilities for national level strategies include the levying of a Carbon tax on C-emitting fuels or tradeable permits which could create a market for externalities. Both of these "tools" are in use, carbon taxes in Sweden, Netherlands, Finland and tradeable permits in USA. {Pearce, 1991}
Such a tax could be levied on all fuels in proportion to the amount of CO2 emitted per unit of energy produced. Attempts to widen the carbon tax to all European countries have been hindered by those who fear that the initial extra costs of energy to industry will be punitive for exports. The concept has also been heavily resisted in North America for similar reasons.
Developing countries are not significant emitters of Greenhouse Gases and regard any such price interventions as detrimental to their development. They regard the industrialised nations as being responsible for Global Warming, and therefore industrialised countries should pay for its remediation.
In the European Community, work is continuing on the introduction of a carbon tax in all its member states however, such a tax has proved to be extremely politically sensitive. Within the EC there are presently two lines of argument over the level of taxation required for it to be effective.
The most studied policy proposal would impose an increasingly punitive tax on fossil-fuels (dependant on the carbon emitted per unit of energy produced), effectively doubling the price of oil by the turn of the century. Economic modelling of the effects of such a tax on GDP conflict. One model indicates a rise in GDP may be expected due to the stimulative effect of an indigenous energy industry (mainly agro-energy) on the economy, despite higher overall energy costs to industry. Thus, whilst energy costs may be higher, the increased payments are retained within the country resulting in a net rise in GDP.
More recently, a second policy option has emerged, which suggests that the level of carbon taxation need not be punitive (i.e. high enough to force energy users to become more efficient, change fuels, etc.,). Sufficient revenue could be raised from a relatively low level of taxation if it was re-invested in energy-efficient and renewable technologies R&D (especially bioenergy), to enable these technologies to provide an economically competitive alternative to fossil-fuels- "accelerated development." Therefore, the desired reduction in fossil fuel use will be achieved indirectly. One prerequisite of such a low C-taxation level is that for the present, bio-fuels and renewables should continue to enjoy lower levels or zero taxation if they are to remain competitive.
Under such a tax system where the revenues from the tax on fossil fuels are returned in part to its competitors (alternative non-CO2 emitting sources of energy), this return represents a subsidy. However, it is not in the long term interests of the renewables, and specifically the bio-fuels sector, for this subsidy to be viewed as a permanent form of support. For biofuels to become increasingly competitive and efficient, un-ending funding could lead to lethargy and stagnation, removing the incentives for further development, whilst continuing to represent a burden for the tax payer. It is for this reason that the independent alcohol producers of Brazil have now come to regard further subsidies and support from the Brazilian government as detrimental. {Goldemberg et al; 1992}.
Currently, carbon taxes in the Netherlands (US$ 1.30 per tC), Finland's tax (US$ 6.10 per tC) and Sweden's (US$ 40 per tC) have the same primary objective of reducing CO2 emissions but, have different secondary objectives. The Netherlands uses the relatively small revenue raised for environmental protection. Finland's carbon tax resulted from an overhaul of its general taxation policy and Sweden's much larger tax was made possible by a 50% reduction in its energy tax, but was accompanied by NOx and SOx taxes. {Barrett, 1991}.
On a broader scale, it is difficult to predict the effects of a C-tax, which could have many knock-on effects. For example, one possible effect of a significant C-tax levied in Industrialised countries might be a lowering in demand for fossil-fuels and hence a drop in world oil prices. This might have the effect of increasing the use of these fuels in developing countries, possibly offsetting any reductions in the Industrialised countries' emissions.
The precise effects of such taxes continue to be uncertain, but estimates on a level of C-tax which would have the effect of lowering carbon emissions by 20% by 2000 to 2005, indicate that the price of oil would have to increase by at least 50% if not doubled. There is considerable uncertainty as to what level of C-tax alone is needed to be effective and the potential size of revenues raised. This has led to the realisation that such C-tax derived revenues may be more effective in assisting the development of alternatives to fossil fuels, than a punitive C-tax alone. These revenues could be used to fund R&D and to pay for "levelling the playing field," thus, facilitating a rapid transition to sustainable energy systems.
Revenue-neutral C-taxes are now being studied, which may include a commensurate reduction in say, corporation tax, Value Added Tax or as in the case of Sweden, the energy tax. In this way distortions to the economy usually experienced with the introduction of a new tax are minimised, and may even help to compensate for previously unaccounted distortions such as the environmental costs of energy use. {Barrett, 1991} However, it is our belief that the revenues raised from a C-tax should be used to facilitate the introduction of a sustainable energy production and use sector, realising the potential to reduce energy costs and accrue many social and environmental benefits simultaneously.
Tradeable permits would create a market for reductions in the emissions in GH gases, and could theoretically be operated at the national or international level. Such schemes could operate on the international level by providing permits to emit a given quantity of Greenhouse gases per capita, for example the global average of 1.4 tC/cap/yr. Countries which were emitting more than the permitted levels of CO2 would have to buy them from countries which were emitting less than the global average. This system would heavily favour countries with high populations and low per capita energy consumption, such as India and China. Another option might be to distribute permits per unit GDP which would favour the industrialised nations.
Tradeable permits offer the cheapest policy for Greenhouse gas emissions reduction, however, difficulties in the equitable distribution of such permits on an international level may be insurmountable. Such difficulties are due both to the amounts of money which might be involved and because of the unequal distribution of energy resources and population. {Markandya, 1991} In addition, many environmentalists view the introduction of such permits as a right to pollute, which they consider to fundamentally wrong.
Besides the environmental externalities of fossil-based energy there are a series of other associated external effects. For example, the cost of securing supplies from politically unstable regions can be extremely high e.g. the cost of "securing" supplies from the Persian Gulf is estimated to be US$ 15 billion a year for the USA to maintain its naval fleet on station. {Hubbard, 1991}.
In many developing countries, the foreign exchange costs of energy and the associated capital costs of the equipment necessary to use it, represent a substantial proportion of total foreign exchange earnings and debt. A stable price for energy therefore continues to be a crucial policy objective in these countries, (see India, section 3).
On average the consumers of electricity in developing countries pay only about 60% of the actual cost of electricity production, and yet commonly electricity is only consumed by the richest section of the community in these countries. {Lensson, 1992} In some countries the perceived developmental advantages of low or very low electricity prices have resulted in tariffs which are so low as to completely inhibit the introduction of any other competing energy sources e.g. in Tanzania the electricity tariff is 0.1 c/kWh or about 1/50th to l/100th of the actual cost of production. In India, preferential tariffs for centralised electricity production and distribution are regarded as detrimental to the adoption of indigenous, decentralised electricity production schemes which can be reliable and efficient and economically competitive. {Ravindranath, 1993} Tariff-reform is now viewed by the World Bank as essential for realistic future energy policies in some developing countries.
Attention has now turned to alternative large scale zero CO2-emitting energy production technologies i.e. nuclear and hydro power. If the full life-cycle costs of nuclear power include the high capital costs and the "safe" decommissioning and disposal of wastes, many experts now recognise that the nuclear option is not cost effective. The prospect of nuclear weapons proliferation is also causing widespread concern and civil opposition. There may also be health and social aspects, including ensuring the physical safety of power plants, which may substantially inhibit the growth of nuclear power.
Increasing the amount of power produced by large-scale hydro-electric schemes is also a much studied alternative to fossil fuels. However, further significant gains in hydro-electricity production may only be at a significant social and environmental cost. The cost of re-location of large numbers of people and the flooding of significant areas of agricultural land, the increasing marginal cost of electricity can make such hydro-schemes uncompetitive when compared to the alternatives, including biomass. (Brazil, section 3) Furthermore, the high capital costs, long construction and payback times and low indigenous employment generation prospects combined with increasing international environmental awareness, is reducing the likelihood that hydro power will be "the" answer to the energy needs of many countries in the future. However, it will undoubtedly continue to play a significant role in future energy provision policies.
The success of some carefully planned regulations, suggests that a more widespread use of regulations may be likely. Regulations can be used to promote energy efficiency and alternative fuels which may be more environmentally friendly, such as biomass. If sufficiently monitored and enforced, regulations can meet their stated aims. The uncertainties involved with market driven policies such as C-taxes and tradeable permits are more problematic.
The USA has had recent experience with the introduction of regulations specifically directed at increasing energy efficiency on both the supply and demand side. The Public Utility Regulatory Policy Act's (PURPA) main aim was to remove the incentives for utilities to supply increasing power to their customers, and thus gain from increased sales revenues. This act legally obliged utilities to incorporate so-called "avoided costs" economics into their planning portfolio. On the supply side, avoided cost economics required utilities to procure electricity form other sources at the cost they would otherwise incur if they were to produce the electricity from their own new generating plant. It thus emphasised efficiency in terms of reducing production costs, and at the same time inhibited such utilities from under-cutting cheaper small-scale producers (predominantly electricity produced from wastes and residues <50 MW). It has resulted in a large increase in power generation from the renewables sector (both biomass and wind power. (USA, section 3).
In the UK, the Non Fossil Fuels Obligation (NFFO), which was originally designed to protect the nuclear power sector during its abortive privatisation programme, resulted in the promotion of renewable energies. The government has stated that it wishes to see a target of 1,000 MW of installed renewable electricity generating capacity by the year 2000, with about 500 MW of projects committed so far. {ETSU, 1991} NFFO guarantees premium prices for electricity produced from renewable sources up to a given date, presently 1998. However, with the increasingly short time in which new projects have to cover their establishment costs, as the deadline draws nearer, has resulted in NFFO being renewed twice. Doubt exists about its further renewal and new investment is stalling.
The main beneficiaries of NFFO to date have been those technologies nearest to commercialisation i.e. wind power, landfill gas and MSW; however, continuing RD&D into woody biomass and agricultural residues shows increased promise (below). It should be noted that the revenue for NFFO is generated via a 10% tax on electricity consumed, virtually all of which is presently used to subsidise nuclear power.
In developing countries, where energy efficiencies tend to be much lower, relatively large gains can be made cost effectively according to Lenssen {1992}. He cites many examples e.g. a retro-fit programme aimed at improving the efficiency of irrigation pumps in India in the mid 1980's "reduced electricity consumption in 23,000 pumps by a quarter, and the improvements paid for themselves in less than six months." However, tariffs are so low that individual farmers have little incentive to make such savings themselves.
China reduced its growth in energy use from 7% to 4% annually by redirecting 10% of its energy expenditure to energy efficiency programmes, without slowing growth in industrial production. A similar return on investments was achieved in Brazil where its National Electricity Conservation Program (PROCEL) spent US$ 20 million over four years, and achieved savings in reducing the need for extra power production capacity and power lines in the order of US$ 600 million to $ 1.3 billion. Such savings could equally be made in any other developing or industrialised country. {Lenssen, 1992} In fact, Sweden expects to double its electricity efficiency, and other European countries expect to achieve CO2 emissions reduction targets almost entirely through increased efficiency. {Fickett et al., 1990} A switch to biofuels will aid such countries to achieve their targets relatively more easily and cost effectively. Biofuels are now being viewed far more positively in the EC, for example, its economic and social committee "considers that biomass is the only renewable energy source which will be able to make a substantial contribution to the replacement of conventional fuels." Furthermore, the EC has preliminary plans for the production of 11 MTOE of biofuels (462 PJ) from 7 Mha. {EC Economic and Social Committee, 1992)
As seen in section 2 ("land availability" and "wastelands"), there are considerable areas of land available for the production of biomass. The utilisation of this land could have many economic, environmental and social advantages, which will require careful planning, incentives and monitoring. In the industrialised countries much of the land being removed from agricultural production could profitably and responsibly be used for energy production because of the associated benefits of such land use. {Ranney, 1992b}
Schemes such as the EC's "Set-aside" policy which requires farmers to leave 15% of their land fallow, and the USA's "Cropland Reduction Programme" (CRP) are making significant areas of land available for industrialised countries. There is a need to find a profitable use for this land as it represents an opportunity to re-invigorate the rural economy. Biofuels offer such an opportunity.
In the UK, Short Rotation Woody Coppice (SRWC) qualifies for "set aside" land and is thus eligible for the "Woodland Grant Scheme" which provides farmers with a sufficiently large grant to cover all the establishment costs of energy coppicing for the first year. {ETSU, 1991} Despite such incentives, farmers will not grow the wood unless profitability can be demonstrated- this requires the creation of a stable market. Thus the establishment of a significant woody biomass energy sector will require the close coordination of both the supply and demand-sides.
In Brazil, for example, woody plantation-derived industrial charcoal production was only established on a significant scale once the iron industry was "forced" to ensure its supply of charcoal from a sustainable source. Therefore, most wood-energy plantations are owned and run by the iron producing companies themselves. (Ch.3) Once a conducive atmosphere has been insured by policy implementation and extension, as in Austria and California, (chp. 3) growth in the production and use of biofuels can be very fast.
Some countries in Asia (see section 2) appear to have only small or none existing land resources to invest in biomass energy programmes. Nevertheless, strategies such as agroforestry, the promotion of efficient forms of energy conversion technologies and the use of agricultural residues and wastes leaves has a significant potential to be tapped. For many of these countries arable land areas have not increased since the 1980's or earlier, but food production has continued to increase, (see fig 9)
Latin America, Africa in general, and several other forest-rich countries in Asia have large areas which could, under specific conditions and long-term policies, be utilized for biomass energy generation. Overall criteria and policies to this end are suggested later in this chapter.
In general, developing countries could gain substantial revenue from more thorough management of woodlands through the development of larger forestry services. Such management of existing natural resources should ensure continued protection for those resources through funding monitoring and sustainable utilisation whilst alternative biomass programmes are initiated.
There is now a greater need for institutions to formulate clear energy goals and provide independent information. In order for any change-over from fossil fuels to biofuels (and renewables in general) to be beneficial, in both economic and environmental terms, there is a need for efficient policies and regulations. Institutions must provide the enabling capacity required to ensure that regulations are adhered to and to analyze data from monitoring in order to revise policies as required.
For countries which do not have the capital necessary to invest in energy efficient infrastructure, institutions must help "develop a regional forum which will greatly improve its position in bidding for international funds," according to Davidson {1992}. Presently, there appear to be many institutions but most are too fragmented and poorly supported to adopt such a strong and enduring role. Examples of such institutions are AFREPREN (Africa), APENPLAN (ASIA), KENGO (E. Africa), ITDG (7 countries), ENDA (W. Africa), ZERO (Zimbabwe) to name but a few. These institutions all need skilled and professional personnel and priority funding on a long term basis if they are to provide the expertise to act as a catalyst for sustainable biomass use.
For example, the African Energy Policy Research Network (AFREPREN) was originally set up in 1989 to overcome the crisis management of energy which became endemic during the late 1970's and 1980's. It has provided a research base and forum for energy policy makers to meet and work with energy researchers in order to clarify existing energy problems and define long term developmental goals. The continued development of such institutions will be essential to implement sustainable energy schemes directed at development.
On a broader global level institutions must be strengthened to provide more detailed information on potential environmental problems caused by the build-up of greenhouse gases and on feasible sustainable land use strategies to counteract such problems. For example, the FAO's Agro-Ecological Zones study is providing a much needed data base on potential productivities of the different ecological zones in a number of selected developing countries. Nevertheless, for this information to be useful to farmers or even national planners, the resolution of its Global Information Systems (GIS's) needs to be much higher. Also, for a global analysis many more countries need to be included in the AEZ study.
In conclusion, there is a need for longer term funding and a coherent development plan for institutions, and there may also be a need for a new institution to "assist and co-ordinate national and regional programmes for the increased use of renewables," as called for by Johansson et al. {1992}
The country and site specificity of factors which are central to successful biomass energy production make the provision of a detailed list of policy options, regulations and institutional changes a very difficult task. Most facets of biomass production and use differ from region to region. For example, potential productivities will change not only from country to country but also site to site. Economic, social and institutional factors also differ widely, particularly policies for subsidising specific fossil fuels for socio-developmental reasons i.e. kerosene and diesel. A comprehensive pro-active system of regulations, institutions and incentives will be difficult to instigate prior to the formation of a significant modern bioenergy system.
It is for this reason that much development is now focused at a more local level for the generation of largely self-sustaining biomass energy programmes. Through the provision of incentives, venture capital and an integrated monitoring programme, the adoption of sustainable biomass-for-energy systems can be made an attractive option at both the small and large scale. Since biomass systems can be implemented on a modular basis, increasingly larger projects can be formulated as technical and management strategies are proven and the benefits accrue from the initial incentives. To start with, the monitoring and regulatory infrastructures should not be too difficult or stringent, and should be tailored to fit the scale of the biomass programme. Nevertheless, the long term objectives need to be clearly stated from the beginning of such programmes.
Large scale biomass energy schemes will not occur through private sector involvement unless a clear economic return can be demonstrated and risks minimised. The benefits of private sector participation at an early stage should include faster commercialisation of new technologies, reduced public sector funding, increased competition, and possibly more cost effective prices for the new technologies. However, longer term, higher risk R&D will not usually be attractive to the private sector unless they can be assured of good returns eventually, and therefore renewable energy technologies may require continued governmental support. Large scale biomass systems will need to compete with state-of-the-art commercial systems already in use and will thus need to be highly efficient and economically optimised. The problem may be that large private institutions and companies may pay less attention to the needs of local people than indigenously derived, small scale biomass systems designed for rural situations.
For such small-scale rural systems, security and quality of energy supply coupled with lower running costs, especially for the provision of modern energy services are most important. These considerations may make purely economic considerations of secondary importance to the social and developmental benefits derived from the indigenous provision of energy and employment. For example, the provision of electricity from village wood-lot supplies in Hosahalli village, South India, provides electricity costing about four times the heavily subsidised centrally produced grid electricity; however, it has many advantages to the villagers including a reliable and secure energy supply. (Chp 3) In such small scale rural systems social factors may outweigh overt economic considerations, with the provision of rural employment and indigenous wealth generation being more important.
Even in larger scale systems such considerations may be important. For example, the biomass-fuelled district heat programme in Austria appears more expensive than fossil fuelled alternatives. However, the perception that the extra "cost" is recycled into the local community (i.e. fuel costs are paid to local farmers and foresters, as opposed to external fossil fuel suppliers) has made the state and local government willing to pay the extra cost. They perceive that much of the extra expense is returned to the community through increasing local development.
An essential partner to the development of sustainable biomass energy production systems is the monitoring programme. Such a monitoring programme should provide information on the effectiveness of existing regulations and incentives. Monitoring may thus allow dynamic feedback adjustments in order to ensure both environmental and economic sustainability.
At the country and regional level, the development of incentives and monitoring, combined with a long term and continuous developmental approach, should result in sustainable biomass energy provision. The need for a "bottom up" approach is made essential by the complexity and diversity of opportunities and obstacles which cannot be addressed comprehensively through "top down" pro-active policies and regulations. A top-down approach could lead to excessively bureaucratic and overburdened institutions unable to cope adequately with the diversity of demands placed upon them.
